The Good, the Bad and the Ugly (of retail)

The digital consumer is difficult to catch and moves quick in an unpredictable manner and often without notice. As a result, retailers attempt a wide variety of ways to both please their customers as well as their shareholders. In today’s article, we highlight three interesting trends which companies employ — with mixed results — as they strike the required balance.

The Good [for retailers] – Using data to ban excessive returns and “return” to the status quo

Omnichannel orders have long included free returns, however we now see an evolution taking place through data that seems to signal “free returns – for some customers.” An article published by the Wall Street Journal introduced consumers to a new world, which outlined Best Buy’s practice of “blacklisting” select customers who return items that are expensive to re-process and/or are items with high levels of theft and fraud. The program’s goal is to maintain a profitable customer base, which is at odds with a customer-friendly return policy. As explained by Tom Rittman, a marketing vice president at Appriss Inc., which owns the technology behind the program, “You could do things that are inside the posted rules, but if you are violating the intent of the rules, like every item you’re purchasing you’re using and then returning, then at a certain point in time you become not a profitable customer for that retailer.” The article points out that Amazon led the charge for free online returns and invested in partnerships (such as Kohl’s) to make the experience easier. Ironically, Amazon may be the next company to ban returns for certain customers and in some cases, shut down accounts. If Amazon, the “world’s most customer-centric company,” is willing to lose customers over returns it may indicate data and analytics capabilities have reached a point where companies are once again at the helm.

Best Buy receipt (image courtesy of Yelp!)

2. The Bad – “Random acts of digital”

As consumers come to rely more on their digital devices to shop, retailers and CPGs match their customers’ desire for a digital experience through increased technological capabilities. In fact, retailers are forecasted to spend an incremental 3% on technology to grow their customer experience and omnichannel offerings. While there is little doubt technology is vital to a businesses’ survival (especially in retail), the purchase of new systems does not automatically equate to a digital experience. A sound strategy must be in place to take full advantage of the technology’s value. However, we often see companies buy technology for the sake of buying. To begin with, there must be plan for how the technology will lead the company towards its greater vision and goals. It’s easier said than done however, there must be an answer to the question: “how does this technology further our corporate goals and what is its broadest application?” Then, companies must operationalize their new purchase and spread the benefits across as many departments as possible. Often this does not happen and the sum becomes “random acts of digital.” To illustrate this idea, take Bed Bath and Beyond. In 2015, the company launched six major technology investments (ranging from POS systems to analytics to supply chain) that gobbled up huge portions of Bed Bath and Beyond’s CapEx spend. Now, several years later, there are no significant gains nor a clear picture of the impact on the business. While their CEO, Steven Temares, has committed the company to a “customer service transformation” project, there is little to tie together all the investments made thus far to a broader strategy.

Retailers are spending more but need a vision and operational plan to have the organization adopt the technology (image from 2018 RIS/Gartner Retail Technology Study)

The rise of ecommerce snuck up on many companies. Target famously used Amazon as their ecommerce platform until 2011, deeming proprietorship of their digital platform an unworthy investment up until then. As ecommerce grew, however, brick and mortar retailers felt the pressure to show digital sales and some decided to grow through acquisition: TheCompanyStore.com went to Home Depot, HauteLook.com to Nordstrom and Chewy.com to PetSmart, to name a few examples. In all cases, significant dollars were spent to drive an increase in ecommerce IQ, acquisition of customers, and the IP of unique go-to-market strategies. However, investments in digital cannot come at the expense of the brick-and-mortar side of the business, which drives the majority of the revenue.

To illustrate this point, Home Depot and Nordstrom understand this concept. Home Depot has heralded an investment of $4.5B over the next three years in its stores, associates, supply chain and delivery capability. Nordstrom recently rolled out a brand new store in Midtown Manhattan to provide an unrivaled customer experience. PetSmart, however, has used their ecommerce acquisition as a store performance stop-gap rather than a launch pad for innovation. In the most recent quarter, Chewy.com has grown 18% (to $650M) while losses at PetSmart widened to -$61M from -$56M during the same period. Much of this is attributed to new stores (60 in 2018 on top of 100 in the past two years) however the -3.8% in comparable-store sales highlights the neglectful management. As long as brick and mortar accounts for the vast majority of retail spend, smoothing over in-store numbers with ecommerce dollars must be recognized as false advertising.

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